COVID-19 leaped to the forefront of investors’ minds last week as an acceleration in cases tempered the investor enthusiasm for a V-shaped recovery. While economic news showed improvement, worries over a possible slowing of business reopening or even a return to lockdowns, combined with worries over trade disputes, pressured equities lower. The TSX for the week fell 1.9% (YTD -11.0%) while the S&P 500 lost 2.3% (YTD +7.59%) and EAFE 1.3% (YTD -12.6%). The price of oil fell $1.64 to close the week at $38.11, and gold pushed higher to $1,770.75 gaining $26.88 for the week. Growth outperformed value with the technology-laden Nasdaq holding up better than the other indices. With behavioral changes in spending patterns resulting from the coronavirus, it is not unexpected that digital technologies will lead the next bull market.
A surge in new cases of coronavirus in southern states and California dominated the news. By the weekend, reopening delays were announced. Texas and Florida took a step in reverse by closing bars, restaurants, and in Florida, selective beaches ahead of the July 4th weekend. New York, Connecticut and New Jersey have imposed two-week quarantine rules on visitors from high outbreak states, adding to the negative sentiment. In the first wave of COVID-19, the older generation with pre-existing conditions paid a heavy price, with 70% to 80% of the deaths occurring in that cohort. The second wave of infection is dominated by the younger generation escaping captivity of home for bars, restaurants, parties and protesting. It is also expected that some of the increase in new cases is attributed to more testing.
With the uncertainty and delays of reopening, President Trump and his advisors told reporters another spending package would be coming soon. Concerns over comments made on the trade deal between China and the US entered the fray with the President reaffirming by tweeting all was well. Tensions between the US and the EU increased with President Trump signaling the possibility of another $3.1 billion in tariffs on EU and UK products beyond what was previously awarded by the World Trade Organization. The beleaguered banks enjoyed a brief reprieve on Thursday with the Fed announcing a relaxing of margin requirements put in place after the financial crisis of 2008 – 2009. On Friday, the Fed said it intended to limit banks’ use of profits to pay dividends to shareholders and for share buybacks, overshadowing Thursday’s good news.
On the economic front, Fitch, one of the bond rating agencies, reduced Canada’s credit rating from AAA to AA+ over concerns of the rising debt from the cost of coronavirus stimulus. Service and manufacturing activity surprised on the upside, according to IHSMARKIT’s gauges, and May durable goods, reported by the Commerce Department, came in slightly higher than expected, beating expectations. New home sales were strong, while existing homes sales disappointed. Weekly new jobless claims declined by less than was expected, still holding over one million, while continuing claims fell below 20 million for the first time since April. One reason suggested for the higher-than-expected new claims filing is that as businesses reopen, it is possible business volumes are not sufficient to maintain staffing levels resulting in further layoffs.
All the social, economic and political uncertainty will increase the volatility of all asset classes as we move forward. It will take some time before a vaccine is available and people once again are comfortable in business and social settings. The virus could be the least of our worries as we enter a period of increasing social discontent resulting from the decades of political and bureaucratic broken promises and mismanagement.
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.
Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.
The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.